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i03 



The Panic 







and 1857 



AN ADDRESS 



HON. JOHN E3 RUSSELL 



DELIVERED HEFORE 



THE NEW ENGLAND FREE TRADE LEAGUE 
MAY 21, 1896 






p 



THE PANICS OF 1837 AND 18^7. 



The Panic of 1837. 

In looking up the panic of 1837, in speeches, Congressional re- 
ports, biographies, and newspapers, I do not find any assertion near 
the time attributing the financial distress to the tariff until the de- 
bate in the Senate in 1842, when Mr. Calhoun, arguing against the 
increase of duties in the act of that year, declared that the panic of 
'37 was caused by the surplus poured into the treasury by the tariff 
of 1833. Both Mr. Calhoun and Colonel Albert Clarke of the Home 
Market Club attribute the trouble to the tariff. The man of that 
period said it was too high, and the man of our time says it was not 
high enough. But there is another authority. Henry Clay, who 
called himself the father of "the American system" of protection, 
in reply to Mr. Calhoun, said : — 

" With regard to the operation of this act [reduction of the tariff] 
it is a great mistake to say that any portion of the embarrassment of 
the country resulted from it. Other causes have contributed to this 
result, and it is to be attributed to experiments made upon the cur- 
rency ; also to the action of the States, which by plunging into 
schemes of internal improvement have made debts abroad, and 
thereby given a false appearance to the prosperity of the country, 
and, when their bonds depreciated, the evils under which they now 
suffer, as a consequence, ensued." 

Here was a protectionist giving the true reason for all our panics, 
1837, 1857, 1873, 1893, in disordered finance and inflated credit. • 

In his excellent "Tariff History of the United States," referring 
to the claim that financial panics resulted from reduction of tariff, 
Professor Taussig says that this common assertion had its origin in 
the writings of Henry C. Carey, "who has been guilty of many 
curious perversions of economic history, but of none more remark- 



able than this : it has been transferred to the arguments of protec- 
tionist authors and speakers in general, yet no fair-minded person 
having even a superficial knowledge of the economic history of these 
years can entertain such notions." It is one of Carey's triumphant 
arguments, continually iterated in speeches, that our early statesmen 
were in favor of collecting revenue so as to afford protection to in- 
fant industries. 

They might also assert without contradiction that a century ago 
there were no statesmen in employment who did not believe in load- 
ing foreign trade with every possible tax, and in protecting naviga- 
tion with enactments so repressive that half its powers were 
destroyed. Colonies were jealously restricted, lest they should con- 
tribute to the profit of any but the home government. This was one 
of the complaints of our fathers against England. It was the 
statesmanship of the time. Theorists, like Turgot, Adam Smith, 
Dean Tucker, and others, clearly explained the advantage of free 
trade ; but men responsible for government continued in the mediae- 
val way from doubt in respect to revenue, fear of losing trade, or, as 
in our country to-day, influenced by powerful classes that insisted 
upon special privileges. 

Never in history had there been such continuous progress, social 
equality and comfort among men, as on these shores in the years of 
the eighteenth century preceding the Revolution. The wastes of 
war were scarcely felt amid "the salutary neglect of government," 
the individual ownership of land, the fertility of virgin soils, the 
wealth of forests, the riches of the seas, and the exuberant freedom 
of the New World. This progress and happiness had been inter- 
rupted by the seven years' war of the Revolution and subsequent 
disorders, so that at the adoption of the Constitution there was a 
poor, discontented people, unwilling, if not incapable, of paying di- 
rect taxes, but with such an equality of condition that taxes upon 
consumption were more nearly equal than they can ever be again. 
'Manufactures were then in their infancy, and might have asked any 
degree of protection. Under these conditions, one is at first 
thought amazed at the low tariff recommended by Washington's 
administration. 

It was upon so few articles that the schedule was printed on a 
sheet about a foot square and hung up in each custom-house. The 



5 

rate was less than lo per cent. Madison and Hamilton were 
in favor of protection ; but they were practical statesmen who had 
to provide not only the means to carry on the new government, 
but also to fund a heavy debt and pay the interest on it. They could 
not impose duties which would restrict importations. They were 
fresh from making a Constitution which fixed the pov/er of taxation 
in its first article, in these words : " Congress shall have power to 
lay and collect taxes, duties, imposts, and excises, to pay the debts 
and provide for the common defence and general welfare of the 
United States." They would have considered that protection other 
than incidental was laying taxes by Congress to be collected by 
others, contrary to the letter of the law. Their resource for revenue 
was commerce, the favorite pursuit of our people ; and their new 
tariff worked wonders. Soon our ships were on every sea. Manu- 
factures, which must always find their sure dependence upon the 
skill and the invention of our people and natural resources, began to 
spring up ; and agriculture flourished as in the age of gold. The 
idea of a tariff for the sake of protection does not appear until the 
debt and depression following the War of 1812 were felt in 1816 ; but 
duties were still low, nor was it a political question. Massachusetts, 
engaged in shipping, trading abroad, in the fisheries and in distill- 
ing rum for export (and home use) from imported molasses, was the 
strongest opponent of early protection. Her rising manufacturers 
soon overcame her ship-owners ; and she joined in making the tariff 
of 1828, when the greed of protectionists fairly equalled in rapacity 
the present Pennsylvania school of penguidinous tax-sharers. 

This tariff was for protection, but it worked both ways. The skill 
and labor of the country were insufficient to supply its wants, and 
revenue poured into a treasury embarrassed by surplus. It stimu- 
lated speculation, and led men unskilled in manufacturing to under- 
take difficult business, with the assistance of the public purse to eke 
out their deficiencies. 

There was an excuse for our fathers in 1828 which cannot be 
pleaded for the protectionists of to-day. No trial of free trade had 
ever been made on an important scale, though the prosperity of the 
country under its first tariff should have been an effectual example. 
England was our example, and she was burdened with every form 
of protection. Each Parliament devised new imposts and restrictions 



to encourage every pursuit. At the end of the last century her 
customs laws made six heavy folio volumes. Between 1797 and 
1 81 5 six hundred separate acts were passed. All duties were 
heavy, and many were prohibitory. The most oppressive were the 
"corn laws," which directly affected us. In 1824 foreign wheat 
was prohibited from entering the kingdom until the current price 
was equal to yos. a quarter. Then a very high duty was imposed. 
When this famine price reached 855-. a quarter, the duty was reduced 
to its lowest, which was 5^-. 2d. per quarter. Under this protection 
wheat had been 1125-., with general distress. Pauperism was 
largely increasing, and English statesmen were fearful of the future. 
The law-making power was in the hands of the land-owners. Land 
was the favorite investment. The landlord, in exchange for the 
corn laws, voted for navigation laws, like our present absurd restric- 
tions, and agreed to all duties on manufactures. 

England had much to sell, but she wanted to escape buying. She 
used every device to lure foreigners to buy, and every prohibition to 
prevent them from selling to her people. The phantom of the bal- 
ance of trade v\^as ever before the eyes of her statesmen. 

The prohibition of American wheat, and the general belief that 
commerce was like a game of hazard, where one side must be the 
loser, were good reasons for retaliation on our part. The national 
debt disappeared. We had no great pension list. The army was 
small. The navy, though it protected a commerce which extended 
wherever winds swept or waters rolled, cost scarcely more in a year 
than we now pay for one experimental iron box, full of machinery, 
called a battle-ship, which is practically obsolete before it is put in 
commission. We had a government with every tradition of economy. 
Consequently, the treasury overflowed with money. This condition 
made it hard to maintain protection against the earnest and well- 
founded protests of the South, which then furnished nearly all the 
exports, and enjoyed no protection. So the idea arose of distributing 
the treasury surplus among the States. 

It was first brought forward by Mr. Dickinson, of New Jersey ; but 
the bill did not pass. General Jackson, who was a ♦protectionist, 
revived the question in his first message. This led to much dis-- 
cussion, with the conclusion that it was impossible to equitably 
divide a surplus raised by a protective tariff. It was clear that the 



States producing the agricultural exports had their trade restricted 
by tariffs, as commerce depends largely upon exchange. They paid 
high prices to their manufacturing neighbors ; while a State like 
Pennsylvania, which, then as now, was the heaviest beneficiary of 
the tariff, would, by a distribution of surplus, add a bounty to her 
excessive protection. This discussion convinced Jackson and a large 
part of the country that the cotton States had a grievance, and, 
though threats of nullification could not be listened to, it led to 
reduction of the tariff in the act of 1833. 

But there was a new embarrassment of riches in the growing dis- 
position to purchase the public lands, and cash poured into the 
treasury from this source. Here was another argument against 
the tariff and alarm for protection. Mr. Clay introduced two bills, 
one failing and one vetoed, to distribute among the States the avails 
of land sales. 

The question of "nullification," the dispute between the adminis- 
tration and the United States Bank, the threatened war with 
France, and the "removal of the deposits" pushed the division 
question along ; but the surplus continued to increase, and, being 
loaned by government to banks, encouraged every form of specu- 
lation. 

In speeches made in 1842 by Mr. Calhoun, to which I have 
before referred, he argued that the tariff of the previous fifteen years 
was the cause of all the political rancor and business disturbance 
of the time and of the financial crash of 1837. 

It made unequal burdens, privileged classes, and discontent. It 
produced the treasury surplus, the use of which by the United 
States Bank created the quarrel with Jackson. The removal of the 
deposits to the State banks followed, which made great ease in 
money, and led to loans upon land securities, vast issues of paper 
money, a general inflation of all values, and the inevitable crash. 

One may believe with Mr. Calhoun upon this question, and not 
be far wrong. He certainly proved, by a mere recital of events, that 
protection is the most pernicious error of government, and a large 
surplus in the treasury is the most dangerous financial condition. 
But Mr. Calhoun was the bitter enemy of General Jackson, and he 
imputed too much evil to the "removal of the deposits" and to the 
State banks, and did not include in his citalogue of evils the Whig 



measure of distribution of surplus among the States, of which I 
shall speak later. When the United States Bank was chartered in 
1816, it was one of its privileges that all money of the United 
States awaiting disposal should be kept by it, with what proved to 
be a troublesome clause, "unless the Secretary of the Treasury 
should otherwise direct." 

The more money the treasury had, the greater the deposits. Con- 
sequently, the bank and its branches, its patrons and partisans, 
favored all measures that added to the surplus. 

It is unnecessary to go into the history of the quarrel between 
the bank and General Jackson, which resulted in the order of the 
Secretary of the Treasury that the accruing surplus should be 
loaned to other banks, although upon this, from its permanent char- 
acter, they were encouraged to issue currency and to make loans. 

Many writers and speakers impute the speculation to the re- 
moval of the deposits to the State banks, but that is a shallow con- 
^ elusion. 

i The whole evil was in the surplus. It had begun to reach danger- 
ous dimensions about the time of its removal. If it had been left 
in the United States Bank and its twenty branches, it would have 
, been loaned for the general speculation, and would have led to the 
I same end. The United States Bank continued under the same 
I management. It had a large surplus and a Pennsylvania charter. 
It uttered no warning, furled no sail, and suspended specie payments 
with all the other banks in 1837. It had a much worse record after 
that than the State banks, for its officers obstructed resumption, 
and, when times were better and bank credit was generally resumed, 
it made a disgraceful failure. 

The first cause was the surplus, which afforded facilities for specu- 
lation no public would have resisted. If it had not been a wild 
gamble in lands, it would perhaps have been something less reason- 
able. The first movement following the extinction of the national 
debt and the accumulation of the surplus was the inevitable increase 
of banking. In 1820 banking capital was ^102,000,000. Though 
times were prosperous, it only rose to ^110,000,000 in 1830; but in 
1834, under the stimulus of a surplus, it rose to ^196,000,000, and 
two years later it was ^281,000,000. 

Government money flo\red in an abundant stream, which was 



dammed and sluiced to irrigate every speculation of the time. Over- 
capitalized railroads with fraudulent construction companies, bloated 
"industrials," silver mines with Sherman-act attachments, had not 
been invented ; but our fathers were quite ready with more simple 
methods. After the reaction from the waste of the war with Eng- 
land, an era of prosperity and good political feeling set in, which 
may be described, for twenty years, in the words of John Ouincy 
Adams in his message of 1827. In the exuberant language com- 
mon to the statesmen of the time, he implies that the productions 
of our soil, the success of our commerce, the political virtue and 
general superiority of our people, had. combined "to mingle in our 
cup a portion of enjoyment as large and liberal as the indulgence of 
Heaven has perhaps ever granted to the imperfect state of man 
upon earth." Mr. Edward M. Shepard, in his admirable life of Van 
Buren, speaking of these years, says, " We were a chosen people, 
delighting in reminders from our rulers of our prosperity, and not 
restless under their pious urgency of perennial gratitude." 

There was a singular exemption from calamity of fire and flood, 
an unbroken succession of good crops, a substantial immigration, 
and a buoyant and hopeful emigration of Eastern people to the rich 
soils of the West, a magical growth of towns, and a rapid advance 
of the frontier. 

The growth of steamboat enterprise was a feature of the time 
greatly assisting development. The increase of cotton spinning 
abroad, and the brisk demand for our staple, enriched the planters, 
raised the price of slaves, and opened the lands of Alabama, Loui- 
siana, Mississippi, and Arkansas to occupation. 

Our early New England ancestors wrestled with a severe climate 
and savage foes. They had to take their part in the wars which 
established the British Empire. They turned from a thin, ungrate- 
ful soil to the high emprise of commerce and the fisheries. Either 
way was the risk which sharpened the intellect, and the toil which 
hardened muscle and developed character. 

But from 1820 to 1837 nature seemed to combine with fortune 
in prodigal generosity, and extravagance took the place of labor and 
frugality. Foreign capital, eager to share profits, was borrowed to 
build roads and canals. The Erie Canal, completed in 1825, had 
opened an imperial water way from the ocean to the Great Lakes. 



10 

It seemed to the wisest and simplest alike that the movement 
must continue in unbroken force, almost beyond the conjecture of 
men. The public domain, as they loved to call it, seemed an ex- 
haustless source of riches and power. 

The delusion on this point is well expressed in a speech made by 
Henry Clay in the Senate in 1832, in his bill to distribute the pro- 
ceeds of the land sales among the States. He said : " Long after 
we shall cease to be agitated by the tariff, ages after our manu- 
facturers shall have acquired a stability and perfection which will 
enable them to cope with the manufactures of any other country, 
the public lands will remain a subject of deep and enduring interest, 
and centuries hence representatives of our children may be deliber- 
ating on laws relating to public lands." 

Little could Mr. Clay foresee that at the end of the century the 
protective system, of which he was the promoter, and which he 
considered only a temporary policy, would, after thirty-six years of 
greater privilege than he ever allowed, hold the agriculture and 
labor of the country in its remorseless grasp, nominating Presidents, 
controlling the Senate, and even purchasing the Presidency with 
enormous contributions of money. 

The public domain, the inheritance of children's children, has, 
since Mr. Clay's words, been vastly increased by war and treaties, 
and extended over regions then, unknown to the shores of the Pa- 
cific ; but, squandered in vast grants to railway corporations, the 
good land is now shrunk to a poor remnant, and the remainder is 
arid wastes and mountain ranges. 

The abundance of land would seem to forbid speculation, but that 
was not the effect. Prior to 1834 the average sale for settlement 
per annum for several years was ^2,500,000; but in 1835 it sud- 
denly rose to $15,000,000, and the next year leaped to $26,000,000. 
This was a revenue greater than the average cost of government, 
and made all taxation superfluous. It seemed an illimitable income. 
\ The business of importation felt the stimulus of flush times ; and 
the customs revenue increased, so that the surplus mounted to 
$40,000,000, which was loaned to speculators to buy more land, the 
money paid into the treasury, and reloaned through the deposit bank 
to the land-buyers. It was an earlier invention of " the endless 
chain." 



II 

Nor was speculation confined to wild land. It raged in "boom 
towns," like the malarial Eden where Martin Chuzzlewit invested 
his money, in sites upon rivers and lakes, in mid-prairie, and in 
Maine pine-land. Foreign capital joined in this to some extent, 
and a stream of gold flowed from Europe to our shores. No one 
thought of the tariff as a political or business factor. It had been 
taken out of dispute by the act of 1833, under the pressure of 
the South and the threat of nullification, which, however bravely it 
was resisted in senatorial speeches and Jackson's proclamation, 
deeply affected the country, and brought about the compromise in 
which Henry Clay agreed with Jackson on one hand, and the 
nullifiers on the other, in a bill settling the question for nine years. 
This act reduced the rates by tenths of the excess of duty over 
20 per cent., to take effect in 1833, 1835, 1837, 1839, ^^^^^ ^^^ ^^' 
maining excess in 1841 and 1842. Credit on duties was abolished, 
and the ad valorem was "home valuation." This was not only a 
strong tariff, but one to which all had agreed ; and it was a point of 
political and sectional honor to be satisfied with it. Every business 
man, importer, consumer, or manufacturer, could calculate upon it 
for years. In this respect it was ideal. It will be noticed that, by 
its terms, a reduction of only one-fifth of the excess of duty over 
20 per cent, had been made, spread over three years, when the 
panic began. The statement that this reduction caused the financial 
panic is, however, not so absurd as the claim that a reduction which 
took effect in 1894 caused a panic in 1893. But we all know that, 
as the years roll on, the claims of the protectionists grow stronger. 

The tariff of 1833 was unnecessary; but one support of a tariff 
was retaliation, or, as General Jackson expressed it in his message 
of 1832, "to counteract the regulations of foreign nations." 

Meanwhile speculation bounded upward. The story of the Maine 
lands speculation is a tradition to this day in some Massachusetts 
families. Lands far beyond the reach of roads or rivers sold for 
more than lots now bring in sight of great manufacturing cities. 
The valuation of some cities rose hundreds per cent., or higher than 
it was twenty years after. The real estate of New York was 
assessed for more in 1836 than it was in 1851, though this was a 
time of great activity, the height of the new emigration to the Pa- 
cific, and a commerce in our own ships with all mankind. 



12 

But, as if there were not ingredients enough mixed in this witches' 
cauldron, a new measure of distribution of the surplus now held by 
the banks was brought forward by the Whig statesmen, anxious to 
share part of the popularity which filled the land in acclaim of Gen- 
eral Jackson. This was the last and worst of the measures, and is 
to be credited to the great names of Daniel Webster and Henry 
Clay. It was demagogy pure and simple. 

In May Mr. Webster brought in a bill which was much discussed 
and amended before it was " reluctantly signed " by Jackson. As 
passed, it ordered a " deposit " of the surplus above ^5,000,000 
with the States, in quarterly instalments, beginning Jan. i, 1837. 
The law read "deposit," to meet Jackson's objections to a gift; but 
Clay declared it would never be recalled, and it never was. The 
bill as introduced by Mr. Webster, and his speech on it, are in his 
works, though many better speeches are left out. The country 
was in the midst of a land speculation such as I have described, 
with all values terribly inflated ; but Mr. Webster spoke of the 
situation as one of unparalleled prosperity and of public land as 
the cheapest safe object of investment. In one of his comprehen- 
sive sentences he says of the cheapness of land as an investment, 
" The sagacity of capital has found this out, and it grasps the oppor- 
tunity." Jackson, Van Buren, then Vice-President, Silas Wright, 
senator, and William L. Marcy, governor of New York, opposed it. 
To Governor Marcy is due the credit of foreseeing evil, warning 
the people against the pervading speculation, and refusing to charter 
unnecessary banks. 

In the July following the bill and the speeches of Webster and 
Clay the administration, alarmed at the situation, issued a circular 
requiring payment for land to be made in specie. This sensible 
action was bitterly opposed by the Whigs, who favored expansion of 
the banks. The speeches of Webster and Clay are astonishing- 
reading. Mr. Webster did not consider the currency unsafely ex- 
tended or the bank capital too large. He thought public lands as 
investments were beyond question, and the prodigious inflation a 
normal increase of all values. The specie circular was intended to 
be a check to land speculation, and it so proved. It brought men 
to the consideration of real values, and plunged all the fortune- 
makers on paper into despondency. Congress and the press were 



^3 

filled with their complaints. Overrated property began to find its 
level. Money had been tight from excess of business ; but it now 
became much scarcer, and lands held for speculation rapidly fell in 
price. 

There was great complaint. Mass meetings were held in the 
cities, the administration was loudly threatened, and foreigners 
began to try to get some of their money out. But the actual crash 
did not come until the folly of the distribution of the surplus began, 
Jan. I, 1837. The first instalment under the law was about $9,000,- 
000. This money was supposed to be in some eighty banks, scat- 
tered throughout the States. It was in fact loaned for business or 
speculation upon indorsed notes and much of the stringency of the 
market was brought about by the preparation of the banks to return 
it to the government. Each succeeding three months another 
instalment was due, and there was terrible apprehension. 

A great part of the surplus was in frontier banks near the land 
offices, and it had to be transferred regardless of the conditions of 
trade, of rates of exchange, of economic necessities, or means of 
transport. 

The contraction of loans and discounts was the first disturbance. 
Then came the change of the money from active capital into pack- 
ages of specie and bank-notes, which, boxed and guarded, slowly 
dragged on the coaches or mud wagons of the day, over rough roads, 
from West to East, South to North, hither and yon, to reach State 
treasurers, and await the action of legislatures. The second in- 
stalment was paid with terrific financial agony. Land ceased to 
be a security, the "sagacity of capital" was not able to realize. 
Cotton and tobacco, our staple exports, fell, the stringency was in- 
supportable, and on May 10, 1837, the New York banks suspended 
payment, giving as their reasons the effect of the surplus distribu- 
tion act and heavy calls for specie. This was followed by the sus- 
pension of the banks in every State of the Union and wide-spread 
bankruptcy. 



H 



The Panic of 1857. 

This financial crisis is attributed by protectionists to the reduction 
of the tariff made in that year ; but such statements are only uttered 
by political speakers and by party organs, and are not found in the 
ofificial reports of State bank superintendents, examinations by 
Chambers of Commerce or Bankers' Associations. 

At the time the reduction of the rates of the tariff of 1846 was 
made there was not a protectionist of importance in public life 
except Horace Greeley and Henry C. Carey. 

It cannot be said that they had all been converted or had passed 
out of existence during the long prosperity of the free trade period, 
because the class of men who seize the opportunity to share the 
public taxes is instantly brought to light by the occasion. 

This was quickly found to be the case at the meeting of Congress 
in the winter subsequent to the panic, when it was evident that the 
new tariff did not produce sufficient revenue. 

Pennsylvania, long repressed, rushed to the front for more pro- 
tection. Even her members of Congress, who had consented to the 
reduction of duties and extension of the free list demanded by the 
New England States, hurried to the new opportunity ; and a fresh 
crop of protectionists sprang up in the congenial soil offered by the 
situation. 

The extended condition of credits and pressure for money which 
precipitated the convulsion of 1857 had been felt for two years 
preceding, and was the strongest argument for tariff reduction. 

The treasury collected too much money, and the old trouble of a 
tariff surplus embarrassed the money market. Business was very 
good, and crops and prices were satisfactory. The clouds on the 
horizon were in the facts that railroad building had been overdone, 
and the banks of the city of New York, where the panic began, 
whence it spread, and where it ended, were loaning far in excess of 
safety. Because the government did not need money, and manu- 
facturers did not want protection, the tariff rates were reduced, and 
the free list extended. It must seem strange to some present, ac- 
customed only to the loud clamor for protection, to be told that this 



15 

reduction of the tariff was strenuously demanded by the manufactur- 
ing interests of New England, and that freedom of trade was insisted 
upon by Massachusetts representatives and senators. 

In the final debate in the Senate on the bill of 1857, Henry Wilson 
said : "The State I represent has deep interest in the modification of 
the tariff. Her business men and her mechanics in all departments 
of a varied industry want action by Congress. We of New England 
believe that wool, hemp, flax, silk, lead, tin, copper, hides, linseed, 
and other articles should be admitted duty free. We are for the 
reduction of the revenue to the actual wants of an economical admin- 
istration of the government for the depletion of the treasury now full 
of hoarded gold." 

In the House Mr. Morrill, of Vermont, a member of the Ways 
and Means Committee, then in the prime of his usefulness, argued 
for a reduction of duties. 

The vote of New England on the bill is a clear indication of the 
opinion of the time. 

N. P. Banks was Speaker, and did not vote ; but the other nine 
members voted for it. So did every member from New England but 
one from Maine, who was absent ; and he had spoken in its favor. 

It may be in order here to look at the causes which had combined 
to turn New England from a belief in the saving power of protection 
to a demand for free trade. 

Her manufacturers had accepted with alarm and gloomy proph- 
ecies the tariff of 1846, made, as they contemptuously declared, by 
a Mississippi cotton planter, in which the highest rates of duty upon 
woolens, cottons, and hardware were 30 per cent, ad valorem, and 
upon most kinds of cotton fabrics 25 per cent. Every member of 
Congress from New England, except Mr. Collamer of Vermont, voted 
against this bill. 

Certainly there must have been powerful reasons which had op- 
erated to change the minds of a great body of intelligent, practical 
men. Those reasons are found in the cold statistics of progress 
between 1847 and 1857. They saw a prosperity more generally 
diffused and fairly divided than has been known since, — capital and 
labor equally satisfied, the number employed constantly increasing, 
and wages continually rising.* 

*A Boston newspaper, endeavoring to prove the fallacy of this statement, thus uses statistics: "In the 



i6 

The rise of values was not confined to city property, as during the 
past twenty-five years. The general prosperity was shared by the 
country property, and farming lands, even of New England, were 
favorite securities for loans. 

Even after the panic of 1857 had reduced the volume of business, 
so that the revenues at the reduced rates were insufficient, many 
of the New England representatives opposed an increase of duties, 
preferring that the government should borrow until times were 
better. 

The late Alexander H. Rice, then a member of the House, and 
actively engaged in manufacturing, said, when the bill increasing 
duties was under discussion in 1859: "The manufacturer asks no 
additional protection. He has learned that the greatest evil, next to 
a ruinous foreign competition, is excessive protection, which stimu- 
lates a ruinous and irresponsible competition at home." 

They wanted the happy medium of a tariff for revenue, which, as 
John Sherman said sorhe years afterward, cannot be framed with- 
out amply protecting all our industries. 

From 1850 to 1857 the business of the whole country had been 
prosperous, with a steady normal increase in every direction. 

Agriculture, commerce, and manufactures seemed to share alike in 
the progress of the time. 

But in the midst of this prosperity there was over-trading, too 
much railroad building, and the difficulty in respect to banking and 
exchanges, which is the chronic and apparently incurable evil of 
our country. 

Business with California had absorbed a great deal of capital, and 
brought about a system of long credits to accommodate shippers 
around Cape Horn. Gold was coming in considerable amount ; but 
there remained an enormous balance against the Pacific coast, 
though it was a tempting and fairly safe business. 

first four years of the Walker tariff the national debt was not only increased, not only doubled, not only 
trebled, but absolutely increased fourfold." 

I quote these words, which are arithmetically true, to show the disingenuous character of protectionist ar- 
guments. The writer omitted to say that, the year the Walker tariff was made, war was declared with Mexico, 
which lasted two years, employed 112,000 men, cost $100,000,000, and added to our country Texas, California, 
Nevada, Utah, Wyoming south of Ihe 42d parallel, Colorado west of the mountains, and part of New Mexico. 

Part of the expense of the war was paid from current income, but the debt rose from 515,000,000 in 1846 to 
568,000,000 in 1851. The protectionist also omits to state that the debt stood at only 528,000,000 in 1857, having 
been reduced $40,000,000 by the Walker tariff.] 



17 

The Crimean war, declared in 1854, had greatly increased export 
trade, and employed all the shipping we could spare, from which 
there was a strong reaction in the peace of 1856. 

From 1840 to 1850, owing to the hard money sentiment which 
had followed the crash and experience of 1837, banking had not in- 
creased relatively with trade. 

New York had added 30 per cent, to her population and business, 
with only ^300,000 increase of banking capital ; but in 1850 
a new generation of men had come to the front, and the old meth- 
ods revived. Banks were rapidly organized. In 185 1 anew bank 
was started in the city of New York for every month in the year, 
and in three years, $16,000,000 was added to its banking capital. 

There were too many banks. They competed for business, paid 
interest on country accounts, offered "facilities" and "accommoda- 
tions." The clearing-house system was new and clumsy. The 
managers of the new banks were inexperienced, and some of them 
utterly unfit, though this may be said of some of the older men. 

In August,. 1857, with no warning except such as might be found 
in a condition of widely extended credits, the Ohio Life & Trust 
Company, a chartered institution with banking privileges, $2,000,- 
000 of capital, and the agency for a large section of the West, sud- 
denly failed. It was found afterwards that its capital had been prac- 
tically embezzled. 

This failure, on a sensitive and tight money market, made a great 
strain. One of the most troublesome features of our disjointed 
banking system was the practice of a great number of country 
banks, whose notes were redeemed in New York, of keeping heavy 
balances there for the sake of the interest. These deposits were 
now a source of embarrassment, for they were at once demanded. 

The time called for cool judgment and bold, concerted action on 
the part of the New York banks. But it proved that the country 
depended upon a number of flabby, retired merchants, who in those 
days were the men from whom bank presidents were taken ; and 
their ignorant and timid action increased the alarm and stringency. 

Each bank sought to save itself by calling in loans and refusing 
discounts. Merchants had to draw out their deposits. 

In his report on the panic the New York State superintendent 
of bankins: said : — 



i8 

"All community of interest, all concert of action as the crisis ap- 
proached, was apparently, if not actually, abandoned. . . . The sus- 
pension was preceded by a desperate struggle among the banks 
themselves, and distrust was more apparent among them than with 
the public." 

A prominent newspaper made a sensational feature of a weekly 
list of bankruptcies and rumors, widely copied by journals from Bos- 
ton to New Orleans. 

This is said to have operated to cut off remittances to New York 
from all parts of the country by debtors who owed suspended firms, 
or those whom they expected soon to see in the panic list. 

All that fortunately small class of merchants and traders who are 
looking for such opportunites seized the occasion to fail. 

As misfortunes always multiply, there was delay in the receipt 
of treasure from California. The discovery of a heavy fraud by a 
paying-teller roused suspicion of other defalcations ; and the New 
York banks continued to tighten the market by the refusal of 
discounts, until by the first of October there had actually been a 
reduction of the discount line of about 30 per cent. 

Bitter feeling was engendered between the merchants and the 
banks, and deposits were so generally drawn out that on the 14th of 
October the New York banks suspended specie payments. It was 
a day of intense gloom and excitement, but it was followed by im- 
mediate relief of tension and a rapid recovery of confidence. 

It was felt all over the country that it was a bankers' panic, and 
no one thought that the method of collecting revenue at the cus- 
tom-houses had anything to do with it. But it was soon seen that 
the panic affected revenue ; for it caused a great reduction of impor- 
tations for the remainder of the fiscal year, and embarrassed the 
treasury. 

This led to the revival of protectionist pretensions, to which I 
have already referred. 

After the pressure was relieved by the suspension of specie pay- 
ments, there was much consultation of publicists, financiers, and 
merchants. Meetings of Boards of Trade, Chambers of Commerce, 
and other public bodies discussed the causes of the panic, and pro- 
posed measures of prevention in the future. 

All of these discussions treated the disturbance as a financial and 



credit difficulty, to be prevented by sounder methods of banking. 
No mention whatever was made of the tariff.* 

I will quote one great authority, the Hon. Nathan Appleton. I 
select him because he was a notable representative of that school of 
public-spirited, "all-around men," financiers, merchants, and manu- 
facturers, who built up the interests of New England. He was 
also a good public speaker, and an able writer upon currency and 
banking. 

In an article published in the Advertiser, Oct, 12, 1857, Mr. 
Appleton says : " During the present year we have been going on 
very smoothly under full sail, when, about the middle of August, a 
sudden squall strikes us, which increases to a hurricane, threatening 
even to swamp the ship itself. The question arises : How comes all 
this about ? What is the cause } " Mr. Appleton then proceeds to 
show that New York was " the great central banking power. She 
sets the key-note. If she expands, the whole country expands. If 
she contracts, it is felt to the remotest extremity." 

He then shows that this great responsibility is divided between 
fifty-five banks, with no leader, and that, under the circumstances 
which I have related, they contracted their loans between July and 
October 30 per cent. " Tremendous ! Was the like ever known 
in the history of banking .? I have no hesitation in saying it is this 
continued contraction of the New York banks since the 5th of Sep- 
tember, without the slightest necessity, which has brought about the 
present disastrous crisis. The New York banks have been acting 
under a panic. That panic they have communicated to others until 
there is a loss of confidence. . . . The question," continues Mr. 
Appleton, "now arises, What is the remedy.? Nothing can be 
plainer. The New York banks must retrace their steps, and 
speedily, or it will be too late. They should at once increase their 
discounts ten or fifteen millions of dollars. No other course will 
set the wheels in motion." 

* This statement is objected to. It should be taken in connection with what I have already said about 
statements uttered only by political speakers and party organs. Such utterances can undoubtedly be cited, 
but not from disinterested parties. Those recently published in a Boston newspaper serve to show the mis- 
takes of their authors. A Rhode Island Congressman, for instance, asked, " How can it be expected that the 
American manufacturer would again put his spindles and looms in operation?" Yet the spindles and looms 
were put in motion again almost immediately, witli great prosperity for New England manufacturers as the 
result. While Congress was revising tire tariff for more^revenue and protectionists were trying to seize the op- 
portunity, the year 1859 was one of the most prosperous the country had ever known. 



20 



It was remarked that a similar panic might have occurred during 
the fall pressure for money in either 1855 or 1856, as the loans in« 
those years were within $10,000,000 of the sum in August, 1857. 
To steady the money market in the future, the New York banking 
superintendent advised that the banks maintain an average of 20 
per cent, of their deposits in coin.; Jand' in March, 1859, when the sky 
was clear and conditions normal, forty-two of the New York banks 
agreed to discontinue payment of interest on deposits, and to keep 
on hand at all times an amount of coin equal to not less than 20 per 
cent, of their net deposits of every kind. 

Let me add that during this panic there was no trouble caused by 
the currency under the New York State system. The contraction 
of the issue was very small, less than a million and a half. The re- 
port of the State superintendent says, " This would seem to clearly 
demonstrate that, whatever may lead to a suspension of specie pay- 
ments, the currency of our banks is not an element in its produc- 
tion." In all New England, bank paper circulated freely after the 
suspension of specie payments. No failures of State banks occurred 
of consequence in New England or the Middle or Southern States. . 
The prices of cotton and grain were but temporarily affected, and 
the real estate market suffered but little. 



J 



[Issued by the New England Free Trade League, June, 1896.] 



